Hon Hai reports stronger than expected net income

APPLE MAKER:：Strong iPhone 5 demand as well as benefits from factory relocations fueled an increase in last quarter’s income as analysts maintain ‘buy’ ratings

By Lisa Wang / Staff reporter

Thu, Nov 01, 2012 - Page 14

Hon Hai Precision Industry Co Ltd (鴻海精密), a major maker of Apple Inc’s iPhone and iPad, posted stronger-than-expected standalone net income for last quarter on the back of an improvement in gross margin and huge increases from asset gains.

Net income more than doubled to NT$30.26 billion (US$1.03 billion) last quarter, or earnings per share of NT$2.57, compared with NT$12.61 billion in the second quarter, or NT$0.94 per share, Hon Hai said in a stock exchange filing yesterday evening.

This represents 57.8 percent annual growth from NT$19.18 billion.

Non-operating income spiked to NT$21.29 billion in the third quarter, mostly due to gains from its subsidiaries, from the second quarter’s NT$8.61 billion, according to the company’s financial statement.

The firm’s non-consolidated revenue reached NT$711 billion in the third quarter, with gross margin of 5 percent and operating margin of 1.5 percent.

“Hon Hai’s third-quarter net profit came in 30 percent higher than our estimate and we expect the fourth quarter to be another very strong quarter driven by the ramp-up for the iPhone 5 and iPad mini,” Daiwa Capital Markets analyst Birdy Lu (呂家霖) said in a report.

Lu predicted that Hon Hai’s revenue would increase 20 percent this quarter from last quarter to hit a historical high and its net profit would also soar to a record-breaking level.

Based on Lu’s calculations, Hon Hai’s consolidated gross margin might well show its first pickup in 10 years in the third quarter, rebounding to 5 percent from 4.9 percent a quarter ago, as the firm’s key clients stopped cutting prices and it also started to enjoy benefits from its factory relocations.

Apple’s iPhone will still be the biggest revenue source for Hon Hai, analysts said.

“The most important factor is the demand for iPhone 5,” Fubon Securities analyst Arthur Liao (廖顯毅) said yesterday.

He maintained his forecast that Hon Hai would ship 147 million iPhones this year and 178 million units next year on expectations of better-than-expected demand for the iPhone 5, which launched in September.

Lu said he expected the iPhone would contribute 25 percent of Hon Hai’s total revenues this year, while the iPad would account for 21 percent.

In the first nine months of the year, Hon Hai’s net income grew 24 percent to NT$57.79 billion, compared with NT$46.56 billion a year earlier.

Daiwa maintained a “buy” rating on Hon Hai, with a six-month target price set at NT$120, implying a more than 35 percent rise, while Fubon kept its “add” rating and a target price of NT$107.